Wednesday, May 11, 2022

Article: Trust Alteration and the Dead Hand Paradox

Jeffrey Pennell and Reid K. Weisbord recently published an article entitled, Trust Alteration and the Dead Hand Paradox, ACTEC Law Journal, 2023 Forthcoming. Provided below is the abstract:

Trusts are popular instruments for wealth transmission because they can be crafted to suit almost any imaginable estate planning goal that is not contrary to public policy. With the abrogation of the Rule Against Perpetuities in most states, settlors may impose trust terms that will be legally enforceable for scores of future generations, if not in perpetuity. Long-term and perpetual trusts, however, present a paradox of dead hand control, because the specificity and the durability of settlor-imposed restrictions tend to be inversely related. As donative preferences become increasingly specific and restrictive, trusts become less durable with the passage of time, as changing circumstances imperil the settlor’s original intent or render the trust unadministrable.

The proliferation of perpetual trusts underscores the salience and need for trust alteration, which coincides with significant reforms in the law governing trust modification. The common law always allowed courts to fortify settlor intent against obsolescence by modifying irrevocable trusts in conformity with the settlor’s material trust purposes. Reforms under the Uniform Trust Code have codified, expanded, clarified, and liberalized the standards for judicial modification. And, most recently, a majority of states have privatized trust modification by authorizing “trust decanting,” an extrajudicial technique that grants the power to trustees who have distributive discretion to convert a settlor’s original trust into a new instrument. This Article examines the current landscape by surveying recent developments in the judicial and extrajudicial modification of trusts.

Applications of the modern rules of trust alteration have prevented beneficiaries from accelerating the termination of long-term trusts and allowed fiduciaries to reinvigorate older trusts for subsequent generations. By strengthening the grip of dead hand control and reinforcing the durability of settlor intent, these trust alteration rules also tend to increase the concentration of private wealth in the hands of trust fiduciaries, who are entrusted by settlors to protect the trust corpus from beneficiary improvidence, taxation, and creditors. The Article concludes by situating modern trust alteration rules within the current debate about wealth inequality in the United States.

Estate Planning – Generally, Estate Tax, Generation-Skipping Transfer Tax, Trusts | Permalink


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